Natural size limit of a corporation (updated)

George Rebane

After some considerable thought, we are adding the criterion for the natural size of a corporation to Rebane Doctrine.  To keep it short and simple, a corporation becomes too large to manage when its manager cannot be reasonably held accountable for the corporation’s major violations of law and regulations.  In short, when the corporation becomes criminally culpable, and no one can reasonably point a finger at any people in management who should be held accountable, then there is a problem.  When that occurs, then the appropriate regulatory agencies, overseen by the Executive, should file suitable anti-trust suits to break up the corporation.  In this case, the offending corporation should be given six to twelve months to come up with a ‘breakup plan’ that it considers acceptable to the regulators and shareholders so that the surviving entities may still be viable in the marketplace.

The acid test of such a break up is whether the new CEO nominees (or management committees) will accept their positions, given that they will be held personally culpable if their corporation goes off the legal or regulatory rails.  If no one is still willing to take the job, then it’s clear that smaller pieces of the original corporation are called for.  Management should have no excuse in copping the pleas that ‘it was too big and complex for me to keep track of it’.  If corporations are to be treated as legal entities with rights and privileges, then they must also be liable for screwing up.  And since corporations as legal entities per se can suffer neither pain nor celebrate joy, that feedback must fall to the humans who can.  That is Rebane Doctrine.

All this comports with the long-held Rebane Doctrine principle that government is not the only kind of large bureaucratic organization that can regularly screw up – all large organizations in which feedback paths become dysfunctional or cease to exist are liable.  Recall that when corporations become leviathans unable to compete in open markets, they use their cash reserves to buy politicians and transform themselves into the corporatist mold in which they invoke the government gun to keep competition at bay.

[update]  The Cato Institute just released a recent policy analysis regarding how government should treat 'tech giants' that have a potential of acting like monopolies in their respective markets.  It's an area where government should provide oversight but tread lightly when it comes to dictating the structure and operational limits for private enterprises.  Economist Ryan Bourne explains in 'Is This Time Different?'

And as radical leftwing and unapologetic as one can get, here is a missive from Umair Haque, currently one of our favorite communists, on the “awesome plan” Elizabeth Warren has “to save America”.  To keep up with great thoughts from our Left, especially on how to treat America's businesses, this piece (here) is assigned reading.

Comments

[Michael R. Kesti]

Please explain when and how a "...corporation becomes criminally culpable..." Does this require a conviction?

[George Rebane]

MichaelK 746am - Great question. Corporate criminality is usually handled by the regulatory agencies that hold hearings citing egregious violations of law/regulations at which corporate attorneys are present to present their side and appeal any 'judgments' (verdicts) that usually result in fines and orders to correct the problem and never do it again. Recent examples include a big mining company discharging its waste into a Colorado river, and VW installing fraudulent software in its cars to pass emission tests.

However, if evidence of management collusion turns up (e.g. emails, etc) that shows that the violation was attributive and purposeful, then the affected individuals can be tried separately in criminal courts with appropriate penalties. However and as you know, such post-hoc connections are highly politicized and hidden/shielded by appropriate lobbying tactics.

As mentioned above, my own druthers are not to accept corporate excuses that the outfit is too big for persons specific to be held accountable. In short, this is the 'shit happens' excuse, and when given should automatically remand the corporation into an judicial (not administrative) process that can lead to its break-up. And you can understand that this new approach has to be handled carefully, else we'll have government constantly configuring private enterprises to conform to ideological strictures. I have appended an update to a Cato Institute policy analysis on this aspect that treats tech giants and considers "monopoly fatalism".

[Michael R. Kesti]

George Rebane | 29 July 2019 at 09:59 AM

Thanks. I prefer holding corporations' officers responsible for their organizations to forcible break-ups. Our governments already mandate too many one-size-fits-none solutions.

[George Rebane]

MichaelK 105pm - That is my preference also, but it runs head on into the seminal reason corporations were invented as legal entities/agents to shield their human owners, managers, and workers from the legal recourse - i.e. the raison d'etre of the 'corporate veil'. Reading the Cato piece shares both of our concerns about govt becoming the de facto director of private enterprise - an existential disaster indeed.

It would be interesting to see how many corporate managers would resign were that veil lifted.